## Multi-Period Deferred Tax: Full Life-Cycle Treatment
### Core Principle
> Total DT created must equal total DT reversed over the full life of the timing difference.
This is the mandatory self-check on every multi-year DT problem.
---
### When Does a Timing Difference Reverse?
| Situation | Creation Year | Reversal Year(s) |
|---|---|---|
| Tax allows 100% deprn upfront; books use SLM | Year 1 (big DTL) | Years 2–N (smaller reversals each year) |
| Preliminary exp: written off in books now, allowed in tax later | Year 1 (DTA) | Year(s) when tax allows it |
| Accrued expense: booked now, taxable when paid | Year 1 (DTA) | Year when cash payment is made |
| Revenue booked early; taxed later | Year 1 (DTL) | Year(s) when taxed |
---
### Accelerated Tax Depreciation — The Most Common Case
Pattern: Tax gives the company the full deduction upfront (100% in year of purchase), while books spread depreciation over the asset's useful life via SLM.
- Year 1: Tax depreciation >> Book depreciation → large DTL created
- Years 2–N: Tax depreciation = 0 (already claimed) but books continue → DTL reverses steadily
Key numbers:
- DTL Created in Year 1 = (Tax deprn − Book deprn) × Rate
- DTL Reversed each subsequent year = (Book deprn − 0) × Rate
- Check: Year 1 creation = Sum of (N−1) annual reversals
---
### Journal Entry Pattern for Reversal Years
```
[DTL Reversal year]
Deferred Tax Liability A/c Dr [reversal amount]
Income Tax Expense A/c Dr [book tax]
To Current Tax Payable [higher tax paid]
```
```
[DTA Reversal year]
Income Tax Expense A/c Dr [book tax]
To Deferred Tax Asset A/c [reversal amount]
To Current Tax Payable [lower tax paid]
```